Sole Proprietorship in the USA: What It Is, What It Costs, and Why Foreigners Should Skip It

A sole proprietorship is not something you register. It is what you already are the moment you sell anything in the United States: the business and its owner are one legal person, with no certificate, no board and no annual report. WHERE THE NAME COMES FROM "Sole" is from the Latin solus, "alone"; "proprietor" from proprietarius, "owner of property", from proprius, "one's own". One's own, alone, owner — English law never separated the trader from the trade. Britain says "sole trader", the Internal Revenue Service says "sole proprietor" and reports the profit as business income on Schedule C. A DBA ("doing business as", also called an assumed or fictitious name) is a label filed with a county or state, not an entity; it shields nothing. HOW TO OPEN ONE 1. Decide whether you need a trade name at all, and check it does not clash with a registered business. 2. File the DBA where required — usually USD 10-100 with a county clerk or Secretary of State. 3. Get local permissions: a city licence, zoning sign-off for a home address, any industry permit. 4. Get an EIN, free on Form SS-4. Optional, useful if you hire or want your SSN off invoices. 5. Open a bank account and keep business money separate. The law does not demand it; your tax return does. HOW TO RUN IT No annual report, no state fee, no separate return. Profit goes on your personal return on Schedule C, and self-employment tax on Schedule SE: a flat 15.3% — 12.4% for Social Security up to the annual wage cap plus 2.9% for Medicare — charged on top of income tax, not instead of it. Quarterly estimated payments apply. That 15.3% is the real running cost of this structure. WHAT IT COSTS Formation USD 0-100 (trade name and local licence). EIN free. Annual state fee 0. Tax preparation 0-500. On top of that: 15.3% self-employment tax, your marginal income tax rate, and unlimited personal liability. IF YOU ARE NOT A US PERSON This is the one structure effectively closed to you. Banks, payment processors and the IRS expect a US person behind a sole proprietorship; know-your-customer checks generally fail without an SSN and a US address, and neither an EIN nor a registered-agent address changes that. Liability is unlimited and there is no separate legal person to sue: a US judgment reaches your personal assets. Trading into the United States from abroad, form an LLC or a corporation instead. One point that applies to every entity in this series: owning a US company is not a work permit. Living or working in the United States needs a visa — E-2 for nationals of treaty countries, L-1 for intra-company transfers, O-1 for extraordinary ability. THE SHORT VERSION Free to start, cheap to run, 15.3% self-employment tax, no liability protection, and unusable for a foreign founder with no US presence or taxpayer identity. General information, not legal or tax advice. Rules and fees change; confirm current figures with a licensed professional before acting.